A guide to interest revenue and high-yield accounts

Generate revenue from interest by making bank accounts available to your customers

As tech companies grow and scale, they must prioritize generating new revenue and earning more revenue per user. 

In recent years, leading brands like Uber and Shopify have popularized a simple solution to this problem:

1. Enable customers to store deposits in embedded bank accounts
2. Generate revenue from the interest your customers earn on those deposits

This arrangement—in which a tech company like Apple partners with a bank to make high-yield accounts available to customers—is known as embedded banking. Embedded bank accounts work just like other bank accounts; they come with cards and statements. And, significantly, they generate interest.

Apple’s new high-yield savings accounts brought in nearly $1 billion in deposits in the first four days.

Generating revenue from interest on your customers’ deposits is particularly compelling in light of the current high-interest-rate environment. Today, rates hover around 5%, and they’re expected to continue rising through at least 2024.

If you’re a tech leader who’s thinking about how to drive more revenue per user, this guide is for you. In it, we’ll explain how to earn revenue from interest on your customers’ deposits, covering topics like:

• How interest revenue works
• How much you could earn from your customers’ deposits
• How to start earning revenue from interest

How interest revenue works

Let’s explore how tech companies like Roofstock earn revenue from the interest on their customers’ deposits. 

Banks often pay for the ability to hold and invest customer deposits; that payment is called interest. When a tech company partners with a bank to make bank accounts available to their customers, the tech company can take a fee from the interest earned on those deposits.

For example, when Stessa (a Roofstock company) makes embedded bank accounts available to their customers, those accounts earn interest. In this case, Roofstock passes the majority of that interest along to their customers in the form of a high annual percentage yield (APY).

How is interest calculated? It may surprise you to learn that there are many ways to do it; the formula in the next section is just one example. Which formula you use will depend on your business model and your bank partner.

How much you earn will depend, first and foremost, on what your bank partner is willing and able to offer. In some embedded-banking relationships, the tech company does not earn revenue from interest. In others, the bank is willing to offer interest at near-market rates. 

So if revenue from interest is important to you, you should surface it early in discussions with potential banking-as-a-service platforms and bank partners.

How much could you be earning?

To illustrate how much you could earn from interest on your customers’ deposits, let’s use an example.

Say you’re the VP of Product at Titan, an investment-management platform. By offering your customers bank accounts, you enable them to manage their cash and investment assets in one place.  

Let’s assume that, in your first month, your customers hold $100 million of deposits in your program, and you’ve negotiated a 4% APY (annual percentage yield) with your bank partner. For the sake of simplicity, let’s also assume that the balance in the account remains constant throughout the month (i.e., there are no transactions), and that you receive monthly—rather than daily—interest payments.

Your agreement with your bank partner stipulates that you calculate interest using the following equation. At the end of your first month, you would receive $333,333.33.

What can you do with revenue from interest?

Embedded bank accounts may be more appealing to your customers if they come with higher interest rates and/or offer better rewards. High-yield accounts can lead to new-customer acquisition, enhanced engagement, and increased retention.

However, that requires keeping less revenue for yourself. It’s a strategic choice that each company manages in its own way. 

In the above example, Titan has a few options when thinking about how to deploy their interest revenue: 

1. Capture the full share. At the end of each month, Titan is paid $333K. In this scenario, they put that money toward operational expenses and profits.

2. Customers keep all of the interest. Titan’s customers receive $333K at the end of the month via cash deposits in their accounts; Titan does not exact any deposit fees.

3. Charge customers a part of the interest they earn. For example, if Titan decided to charge customers a 50% deposit fee, their customers would effectively pay Titan half of the $333K (about $166.7K).

Titan could also vary their deposit fees by customer segment. As an example, they could offer a full 4% interest to customers who hold more than $100K in their accounts, while offering 3% to everyone else—and keeping the difference.

Apple’s recent launch of high-yield savings accounts is an example of option two (above). In this case, Apple passes the interest along to their customers at competitive rates—a compelling offer for new customers.

Additional revenue streams from embedded banking

Earning revenue on your customers’ deposits is perhaps the most obvious way to make money from embedded financial products—but it’s hardly the only one. Based on our experience, these other revenue streams have the potential to be even more lucrative than revenue from interest. 

• Interchange. When your customers make card purchases, you earn a fixed percentage of the net interchange from each transaction. 

• Payment fees. It’s possible to charge your customers for certain payment types, especially those that offer enhanced speed (e.g., wire transfers, instant payouts, push-to-card).

• Lending and financing. Embedded lending and financing options have the potential to generate the largest revenue streams within embedded banking. 

• SaaS tiers. Some platforms charge their customers a fee to access premium features like embedded banking. 

Start earning interest on your customers’ deposits

Offering your customers embedded bank accounts may sound daunting—but it’s easier than you think.

Our company, Unit, is a banking-as-a-service platform. That means we help companies like yours launch interest-earning bank accounts (among other financial products). Many of our customers are able to launch quickly, with minimal engineering resources, using our White-Label UI Components.

‍Curious about embedded banking? Wondering whether it’s a fit for your company? Drop us a line—or just sign up for our sandbox and start building.